Bending the Medicare Cost Curve for Physicians’ Services: Lessons Learned from Canada

In 1997 Congress created the Sustainable Growth Rate (SGR) formula for the payment of physicians under Part B of Medicare. SGR established a target rate of growth for aggregate costs of physician services under Part B, linked to growth in overall GDP. If growth in aggregate Part B costs exceeds the target, the rate at which physicians are paid in the following year is to be reduced by a corresponding amount. In SGR, Congress and the U.S. medical profession jointly confront a policy dilemma with no clear solution. For several years running, Congress has elected to postpone cuts in payment to physicians required under SGR. Absent further Congressional action, in 2013 physicians’ fees under Part B of Medicare will be reduced by more than 30 %. The historical roots of SGR suggest that a potential solution lies in shifting to regional expenditure targets—an approach applied successfully in Canada in the 1970s when Canadian Medicare confronted rising physician fees. The commission that created what was to become SGR was aware of the lessons learned in Canada, and recommended that they also be applied to U.S. Medicare.